KfW improves its promotional capacity with very positive results for 2016

• Promotional business rises to EUR 81 billion
• Consolidated profit reaches EUR 2 billion
• Total assets are slightly higher than last year's level at EUR 507 billion

KfW Group once again registered very strong demand for its financing products in financial year 2016. The volume of new promotional commitments rose to a total of EUR 81 billion (2015: EUR 79.3 billion, +2%). With a volume of commitments totalling EUR 55.1 billion (2015: EUR 50.5 billion, +9%), its domestic promotional business provided clear growth impetus for the German economy. The increase stemmed primarily from high private-sector demand for housing construction loans, in particular for energy-efficient building and refurbishment. However, companies also made extensive use of KfW's promotional programmes. International business commitments remained stable at EUR 24.9 billion (2015: EUR 27.9 billion). The volume of financing and promotion in development cooperation was very positive in 2016 (EUR 8.8 billion; 2015: EUR 7.7 billion). The volume of financing offered by KfW IPEX-Bank as a specialist for export and project finance normalised again at EUR 16.1 billion (2015: EUR 20.2 billion) following the exceptional result recorded in the previous year owing to several large-scale commitments in ship financing.

Promotion provided for environmental and climate protection projects once again formed an important focus for KfW's work (EUR 35 billion, or 44% of total commitments).

Posting a consolidated profit of EUR 2,002 million (2015: EUR 2,171 million), KfW achieved a very good result in the 2016 financial year, which, although it fell in contrast to 2015 as had been predicted, still managed to exceed expectations. This development was attributable mainly to the valuation result, which was in turn influenced by positive non-recurring effects, and decreasing expenses in promotional activity due to the current low-interest environment. Also, the purely IFRS-related effects from the valuation of derivatives used for hedging purposes amplified the earnings position by EUR 233 million. At EUR 1,769 million, consolidated profit before IFRS effects from hedging – which is relevant for the management of KfW – came in lower than the previous year’s figure (EUR 1,900 million).

"Continuing on from 2015, this year's very strong consolidated profit is again higher than our sustainable earnings potential and has benefited in particular from positive valuation effects," said Dr Günther Bräunig, member of the Executive Board of KfW Group. "In light of the challenging interest rate environment and KfW's efforts to modernise, the improved capital base resulting from this development safeguards KfW's promotional capacity over the long term, even under the more stringent regulatory requirements."

The operating result before valuation (and before promotional activity) was EUR 1,898 million (EUR 2,066 million). Net interest income (before promotional activity) amounting to EUR 2,802 million (EUR 2,904 million) continues to be the main source of income based on KfW's ongoing excellent funding options.

Promotional activity – mainly interest rate reductions for new business in 2016 – totalled EUR 230 million, lower than the previous year (EUR 345 million) despite the still low rate reduction margin in the ongoing low-interest environment.

Risk provisions in the lending business pulled earnings down moderately by EUR 150 million. While these remained below expectations, they are higher than the exceptionally low figure recorded for the previous year (-EUR 48 million). In this case, the need for value adjustments, particularly in the business sectors of Export and project finance and Promotion of developing countries and emerging economies, were partly compensated by positive non-recurring effects in the form of income from recoveries of loans that had already been written off.

The result from the private equity and securities portfolio amounting to EUR 86 million (EUR 166 million) is attributable in particular to DEG’s private equity business.

The purely IFRS-related effects from the valuation of derivatives used in closed risk positions exclusively for hedging purposes contributed to the positive valuation result with EUR 233 million (+ EUR 271 million).

At EUR 507.0 billion, total assets were slightly above the figure as of 31 December 2015 (EUR 503.0 billion).

The Group’s regulatory capital ratios improved compared to 31 December 2015. When applying the IRBA analogously, the total capital ratio stands at 22.3% as of 31 December 2016 (31 December 2015: 18.4%), while the tier 1 capital ratio also comes to 22.3% (31 December 2015: 18.3%). This positive trend is mainly attributable to the strong annual result and improvements to the risk measurement method in 2016. KfW has been subject to the regulatory reporting requirements for capital ratios since January 2016 and will report to the banking regulatory authorities according to the credit risk standardised approach (CRSA) until it receives regulatory approval to apply the IRBA. As of 31 December 2016, the total capital ratio and the tier 1 capital ratio as per the CRSA stood at 15.9% (31 December 2015: 13.5%), taking into account the annual result for 2016.

¹⁾ The analogous IRBA ratios were calculated voluntarily for internal purposes on the basis of the relevant legal provisions and taking the annual results into consideration. KfW no longer has any tier 2 capital in its equity, so that the (common equity) tier 1 capital ratio and the total capital ratio as of 31 December 2016 are the same.
²⁾ The stated CRSA ratios take the annual results for 2016 into account. KfW no longer has any tier 2 capital in its equity, so that the (common equity) tier 1 capital ratio and the total capital ratio as of 31 December 2016 are the same.

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You will find a digital copy of the KfW Annual Report for 2016 at: www.kfw.de/geschaeftsbericht